UPDATE 2-WhiteWave receives lukewarm reception from investors

Oct 26 (Reuters) - WhiteWave Foods Co shares received a lukewarm reception on Friday in their New York Stock Exchange debut, as they traded narrowly below their offering price.

Shares of the Dallas, Texas-based Dean Foods Co spin-off changed hands at $16.87, after pricing at $17 on Thursday evening. They opened at $19.

WhiteWave sold 23 million shares in an upsized deal, raising $391 million. The company, which sells Silk soy milk and Horizon organic dairy products, had expected to sell 20 million shares within a range of $14 to $16 per share.

``WhiteWave is at the forefront of on-trend categories,'' said Gregg Engles, the chief executive of Dean Foods, who is now leading WhiteWave.

Dean Foods announced in August it was spinning off its WhiteWave segment, whose brands appeal to health-minded consumers. The company also confirmed in September it is looking for a buyer of its Morningstar division, which sells Friendship cottage cheese and private label dairy products such as creamers, ice cream mix and sour cream.

Reuters reported late on Thursday that Mexico's Grupo Lala, Michael Foods and Apollo were eyeing the Morningstar business, which could be valued between $1 billion and $1.5 billion.

In an interview on Friday, Engles said the Morningstar sale process was ``moving along.''

Shares of Dean Foods, which would sell mostly milk following the spin-off of WhiteWave and a sale of Morningstar, were down 11.5 percent in afternoon trading on the New York Stock Exchange.

Morningstar analyst Erin Lash said the market could be concerned about Dean becoming a fluid milk business sooner rather than later.

That business has been squeezed in recent years by higher dairy costs, the weak economy and cheaper private label brands.

Passing on higher commodity costs is difficult in the milk business because there is little brand loyalty and consumers often choose the cheapest brand.

But WhiteWave's margins are better since its products have brand power, Engles said, adding that its brands and margins should make it attractive to investors.

Natural and organic products have been a bright spot for packaged food and drink makers, as they seek to harness consumers' growing interest in healthy eating.

Analysts have said WhiteWave could be an attractive target for other food or beverage companies, including the likes of PepsiCo and Coca-Cola.

Engles said Dean briefly considered selling WhiteWave but that tax issues made a spin-off more more logical.

Aside from continuing to focus on organic growth of its brands, WhiteWave would be open to acquisitions, even outside of its core categories, Engles said.

Dean Foods is selling a 12 percent stake in the WhiteWave unit. The remaining 88 percent of shares might be transferred to Dean Foods stockholders via a tax-free transaction, Whitewave said earlier in October.

WhiteWave's IPO comes after the success of other recent offerings from organic foods companies, including Annie's and Natural Grocers by Vitamin Cottage Inc.

Shares of Annie's have more than doubled since the company's March IPO to close Thursday at $39.45. Shares of Vitamin College closed at $20.11 after pricing at $15 in July.

WhiteWave's net sales rose 12 percent from the year prior to $1.9 billion in 2011.

WhiteWave Foods said it would use the proceeds of the offering to pay back debt owed to Dean Foods.